Official Report of the Grand Committee on the Commonhold and Leasehold Reform Bill [H.L.] (Hansard, 22 March 2001)

HL Deb 22 March 2001 vol 623 cc241-92GC 241GC

§ Thursday, 22nd March 2001.

§ The Committee met at four of the clock.

§ [The Deputy Chairman of Committees (Lord Skelmersdale) in the Chair.]

§ Clause 125 agreed to.

§ Clause 126 [Replacement of residence test]:

§ Lord Williams of Elvel moved Amendment No. 225: Page 58, line 3 leave out subsection (2).

§ The noble Lord said: In moving this amendment, it may be for the convenience of the Committee if I speak also to Amendment No. 227. Included in the group are other amendments which propose similar arrangements. We now move on to the question of the renewal of leases. From our debate so far, I understand that the Government are not entirely committed to abolishing leasehold. Therefore, we have to look at the problems of those who remain leaseholders under the present system.

§ I recognise that the Government have a problem. Having removed the residence test for qualifying tenants who wish to enfranchise, they then have to address, as they have done in Clause 126, the problem of tenants who wish to renew their leases. I do not think that the Government have it quite right in this instance. As drafted, the Bill is unduly restrictive. Having removed the residence test for enfranchisement, it seems to be slightly unfair on those who wish to have a new lease to provide that they should be qualifying tenants for at least the previous two years. My amendment, coupled with Amendment No. 227, would reduce that period to six months. There are some fairly serious arguments in favour of that, which I am sure other Members of the Committee will deploy. It is a question of fairness. I recognise that there is a problem, but I believe that the Government have gone a little too far. I beg to move.

§ Lord Goodhart
Our Amendment No. 226 is grouped with Amendment No. 225. Amendment No. 226 would retain a residence qualification, though a considerably reduced one in time. For the reasons given earlier, we no longer wish to press for the preservation of a residence requirement. In those circumstances, I shall not be moving the amendment.

§ Lord Kingsland
I am sad that the noble Lord, Lord Goodhart, does not intend to move his amendment because had he done so we would have supported it.
We also have Amendment No. 226A—Amendment No. 227A is consequential—which seeks to replace the existing residence test with an occupancy requirement. If there is no occupancy requirement, we believe that 242GC investors will quickly realise that they can benefit from a windfall gain through being able to sell the extended lease at a premium. This would encourage speculative purchasing and would eventually distort the market by pushing up the value of short leases. This, in turn, would make it more difficult to identify a fair price for enfranchisement.

§ The Earl of Caithness
I rise to support the amendment of the noble Lord, Lord Williams, to which I have added my name. I hope that it will receive a favourable comment from the Government because on Clause 116 stand part the noble Lord, Lord Whitty, said that he did not want speculators to benefit from enfranchisement. If one does away completely with the residency test, it is exactly those speculators who will benefit the most from enfranchisement.
There is no question that there are people out there in the market—particularly in the London market—who buy properties with a view to enfranchising them. If there is no residency test, one will encourage the development of a small and, to my mind, unacceptable group of people who will do that as a professional way of making money. That would be an abuse of the normal housing market and would be bad for the landlord/tenant system.
I thought of tabling an amendment to provide that any non-resident should pay 100 per cent of the marriage value. Having listened to the debate last week, I knew that that would commend itself, notably to the Liberal Democrat Party, which would like marriage value to continue. However, perhaps the better way of achieving what is required is the way that the noble Lord, Lords Williams, has suggested: that there should be at least a six-month residency test. I would prefer a 12-month test. However, I understand the difficulties that some tenants have faced under the present condition of three years. I believe that the noble Lord, Lord Williams, has reached a sensible compromise.

§ Lord Selsdon
I have a problem with the difference between what is a qualifying tenant, a qualifying person or a qualifying being and what is residency and non-residency. As the Bill stands, it is not so much occupation but ownership that determines matters.
In my banking life, I have come across many situations where a family decides that it will buy a flat for its children for them to occupy for a period of time. Some of these flats may not qualify for enfranchisement. The difficulty we have is in separating those whom we believe morally should have a right to enfranchise from those who would do so from a purely speculative point of view.

§ Lord Williams of Elvel
I am sorry to interrupt the noble Lord. The definition of a qualifying tenant is set out in Section 6 of the Leasehold Reform, Housing and Urban Development Act 1993, which states: That condition is that the tenant has occupied the flat as his only or principal home".

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§ Lord Selsdon
I understand that. I am referring to the difficulties that have been created by previous legislation where it has not necessarily been clear. When one is faced with serving a Section 13 notice and having to prove people's residency status—whether they are domiciled or ordinary residents of the United Kingdom; whether they are expatriates who have been abroad for a particular time; whether for three years out of the past 10 they have been occupying the property—one finds that there are people who put telephone bills and so on in their own names even when they are not there. People get up to these kinds of tricks because of the complexity of the previous legislation and the failure of previous governments to address the issue.
I am trying to say that, if possible, we should treat ownership as the key factor: how long someone has owned a property; whether it is for the benefit of their family or for their own personal benefit I have often been involved with members of the international expatriate community who feel very strongly about the previous legislation. They have bought property for themselves and their future, let it and then found that for some reason they are unable to enfranchise. I should like to see the definition reworded. If we start to argue about whether it should be three months, six months or nine months, speculators may find an opportunity to put someone into the premises and have a side agreement. It is not clear. If our objectives are to treat well those who deserve to be and to try to stop speculation, the Bill as drafted does not achieve them.

§ Lord Richard
My name is attached to the amendment. I thought that I was putting my name to a proposal to abolish the two-year residence qualification. Having heard the noble Earl, Lord Caithness, I was not sure whether that was the effect of the amendment. On the assumption that it is, I shall listen with great interest to what the Government have to say; if it is not, I shall return to it at a later stage.

§ The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty)
Some of the principles that we have just debated were dealt with in the previous context. We appreciate the concern expressed by the noble Lord, Lord Kingsland, and others that to abolish the residence test could provide an incentive and a temptation for speculative purchasers rather than genuine home-owners. To reiterate, it is certainly not the Government's intention to enable investors to expropriate the assets of others by entering this market. In addition, the existing test excludes leaseholders from the right to renew their leases, and in many cases they are in genuine need of the protection that is afforded by that right.
As has been said, currently many flats are occupied for a variety of different reasons. They may be second homes, against which we are not legislating. To bring 244GC home the point more acutely to some Members of the Committee, they may be the London homes of people whose main residence is elsewhere for various purposes: others are sublet while the leaseholders work abroad, as the noble Lord, Lord Selsdon, said, or because the owners have had difficulty selling them. The occupiers or owners of those flats are not speculators, or, strictly speaking, investors, but private owners. If the lease becomes too short they will be unable to sell it without first extending it. Without a right to renew the lease at a reasonable price they are left vulnerable to greedy landlords. Moreover, some landlords have made a practice of refusing to let to genuine residents unless they create a company to which the lease is then given. Although these people lease through a company they are genuine residents. That structure would automatically prevent them from ever qualifying under the existing residence test.
Instead of requiring leaseholders to reside in their flats, the Bill provides the alternative requirement that they must have held a long lease for at least two years before they can exercise that right. That is not perfect but it goes some way to remove the opportunity for short term speculative gain while protecting the interests of other residents, which seems to represent a sensible balance. It is, therefore, a matter of balance and a number of these amendments seek to strike a different one.
The amendment spoken to by the noble Lord, Lord Goodhart, dealt with the abuse of company lettings. While a minimum residence of 12 months, as in the amendment of the noble Lord, Lord Kingsland, would be a greater deterrent to speculators than a shorter period, it would still create difficulties for the categories of private owner that I have mentioned.
The issue of evasion mentioned by the noble Lord, Lord Selsdon, is dealt with to a large extent by the two-year provision, because eligibility depends on owning the lease for two years rather than on a dubious basis of proof of actual residence.
Amendment No. 225 would reduce the period to six months. That, again, is subject to the same criticisms as apply to the amendment of the noble Lord, Lord Kingsland. The noble Lord coupled that amendment with the amendment of my noble friend Lord Richard, which would have gone one stage further. Unusually, my noble friend Lord Richard was confused about the implications of his amendment. My noble friend Lord Williams indicated that the two amendments should be taken together. However, as we understand it, Amendment No. 227 not only scraps the residence test but also cuts out the requirement that the leaseholder should have been a qualifying tenant for two years, in which case there would be no anti-speculation test whatever.

§ Lord Williams of Elvel
I thank my noble friend for giving way. I did not request the grouping. The department produced the grouping. I did not object to it, but I did not request it.

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§ 4.15 p.m.

§ Lord Whitty
I was not talking about the grouping. I may have misunderstood my noble friend, but I thought he said that he wished to couple his amendment with Amendment No. 227.

§ Lord Williams of Elvel
Yes.

§ Lord Whitty
It is to Amendment No. 227 that I now address my remarks. The amendment cuts out both the existing residence requirement and the two-year qualification period. I understand the argument that cutting out the two-year waiting period could make it more attractive for people to buy flats with relatively short outstanding leases, but it also opens up the possibility of the kind of speculation that we are trying to avoid. We think that the two-year ownership requirement of the lease would be a reasonable protection and would avoid at least some of the downsides of the existing residence qualification. It is a complex area. We believe that the Government have come up with the best solution so far. Therefore, for the moment at least, I would wish to stick with the Bill as it stands.

§ Lord Goodhart
Before the noble Lord, Lord Williams, replies, perhaps I may say that there is probably not an enormous attraction here for speculators anyway. Except perhaps in the cases of leases that are coming very close to their end, there is unlikely to be a great difference in price between leases that have already been extended and those that could be extended in the future, except to the extent that the one will take into account the fact that the money has already been paid, whereas in the other the price will have to reflect that money will have to be paid in order to extend. However, I should have thought that there would not be an enormous bonus here for speculators.

§ Lord Williams of Elvel
I am grateful to my noble friend for his reply. This is a difficult area. I make no bones about that. My proposal was that the residence test should be abolished. Nevertheless, I recognise the argument of the noble Earl, Lord Caithness, that the Government might accept an interim arrangement. However, I understand the problems involved. I hope that by the time we reach the next stage of the Bill those problems will have been digested. I shall read carefully what my noble friend has said. I am sad that the noble Lord, Lord Goodhart, did not speak to his amendment, because I would have liked to have heard his arguments. Nevertheless, in order to get on with the business, I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ [Amendments Nos. 226 to 227A not moved.]

§ On Question, Whether Clause 126 shall stand part of the Bill?

§ Lord Williams of Elvel
The Question whether Clause 126 shall stand part of the Bill was grouped with Amendments Nos. 225 to 227A. I do not know whether the noble Baroness wishes to pursue the matter.

§ Baroness Gardner of Parkes
I was not present when the Committee resumed because I had to attend the 246GC meeting of those who sit on the Woolsack during the week. I am sorry that I was unable to speak. My point seems to be totally unrelated to that of the noble Lord, Lord Williams, in that I wanted to retain the residence test. That is why I oppose the clause standing part. I do believe that there is money in this for property speculators. I believe that the modified residence test would be good but not the residence test as provided at present. I would have modified it but kept it in some form. I would certainly not have allowed company ownership. That is why I sought to oppose the clause standing part of the Bill.

§ Lord Whitty
We have gone over much of the argument. Clearly, all sides recognise that the present residence qualification is not appropriate. We believe that we have reached a position that is the best yet on the table in relation to the two-year holding of the lease. In replying to the previous debate, my noble friend Lord Williams said that we might return to the issue were we to be granted a further stage of the Bill at some point. It may be that people's ingenuity will find something along the lines of what the noble Baroness, Lady Gardner, suggested. At the moment, however, I am not convinced that there is anything better than what the Government have proposed. I am therefore sticking to it. I hope that the clause will stand.

§ Lord Richard
Before my noble friend sits down, do I take it from that the Government are open to consideration of possible amendments to the structure of the Bill and that they will be prepared to discuss the matter to see whether we can arrive, as he puts it, at something that is better than that which we have?

§ Lord Whitty
I am not sure what my noble friend means by "structure of the Bill". But, in relation to these provisions, were a new idea to be put on the table we would certainly be prepared to discuss it both formally and at a later stage in the Bill. However, I do not believe that there is an appropriate one on the table today.

§ Baroness Gardner of Parkes
I accept that. I shall not continue my opposition to Clause 126.

§ Clause 126 agreed to.

§ Clauses 127 to 129 agreed to.

§ Clause 130 [Valuation date]:

§ Lord Kingsland moved Amendment No. 227B: Page 58, line 36, leave out from ("lease),") to end of line 37 and insert ("in paragraph 1, for the definition of "the valuation date" substitute— "the valuation date" means the date of service of the reversioner's counter-notice."").

§ The noble Lord said: In moving this amendment, I should like to speak also to Amendment No. 228A.. We support the proposal to fix the valuation date but we think that it would be more appropriate for it to be fixed at the date of the landlord's counter-notice as that is the point at which the second party engages in the process. We are also in favour of standardising as many elements of the processes under leasehold legislation as possible. The amendment parallels Amendment No. 222A.

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§ Similarly, Amendment No. 228A is a parallel proposal, matching Amendment No. 223A, that interest shall be payable on the purchase price. The same arguments apply. I beg to move.

§ Lord Whitty
As the noble Lord indicated, we had this discussion in the collective enfranchisement context. Our proposal to fix the valuation date for a renewed lease on a flat as the date of the initial notice was intended to provide certainty but also consistency with a long-standing approach to leasehold houses under the 1967 Act. We see no real reason to depart from that principle by adopting the date of the counter-notice, as the noble Lord, Lord Kingsland, suggests. We would normally expect the landlord to serve a counter-notice relatively quickly after receipt of the initial notice and we certainly want to encourage that. In circumstances where adopting the date of the counter-notice changed the situation dramatically, clearly the landlord had delayed in replying, presumably to gain an advantage at a time of rapidly increasing property value. That is not a reaction from the landlord that we would wish the Bill to encourage.
Amendment No. 228A deals with the interest position. I can appreciate that in a rising property market landlords could, at least notionally, be disadvantaged as a result of the price being determined at the earlier date, but it would not be fair to provide a right to a payment, which would effectively amount to an interest payment, between the date used to determine the price and the date of completion. Any disadvantage to the landlord would have arisen only in a rapidly rising property market. If the property market were static, declining or rising at less of a level than the interest rate, there would be no justification for such a payment because there would not have been a disadvantage to the landlord.
The solution is that the lease renewal process should be as rapid as possible. The intention of this and other provisions is to reduce the scope for procedural delay, reduce the scope for disputes and keep a degree of consistency with earlier legislation in this field. I hope that the noble Lord, Lord Kingsland, will not pursue this matter here or in other contexts.

§ Lord Kingsland
It may be trite to say, but despite the passage of a week, the noble Lord, Lord Whitty, has learnt nothing and forgotten nothing. Nevertheless, I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ Clause 130 agreed to.

§ [Amendments Nos. 228 and 228A not moved.]

§ Clause 131 agreed to.

§ Clause 132 [Disregard of marriage value in case of very long leases]:

§ [Amendments Nos. 228B and 228C not moved.]

§ Clause 132 agreed to.

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§ [Amendment No. 229 not moved.]

§ Clause 133 agreed to.

§ [Amendments Nos. 230 and 231 not moved.]

§ Lord Goodhart moved Amendment No. 232: After Clause 133, insert the following new clause— ("Long leases